Companies Like Sony And Gap Are Failing At Social Media Because They Just Don't Get It

"This business model is right for a company selling Purina Dog Chow, circa 1970."

"There's no way we could ever be this collaborative."

Both are comments I got about my book, back in 2009, about setting direction, collaboratively. The first is from a Google executive; the second, from an exec at Cisco. Same business model architecture, two entirely different responses: obvious or unachievable.

Facebook, KickStarter, Kiva, Twitter, and other companies thriving in the social era are operating by the rules of the Social Era. They get it. They live it. And to them, it's ridiculously obvious.

But too many major companies — Bank of America, Sony, Gap, Yahoo, Nokia— that need to get it, don't. A friend of mine who runs a venture capital firm is emblematic of the bias I encounter in the Bay Area. He tells me to ignore the big enterprises; that they are not the future. But I'm not willing to give up on these firms. I think we can get the 800-pound gorillas of our day to act more like 800 gazelles — fast, nimble, and collaborative.

Like the rising temperature of the water the proverbial frog is sitting in, organizations are feeling the social era all around them, but failing to notice how significant a change it has produced. Because it has shown up in bits and pieces, via freemium models, crowdsourcing, online communities, virtual workforces, social networks, and so on, it is easy to miss how much the overall context has changed for the way value is created.

You might notice that I have used the term social era. It's not to create more jargon, it's to emphasize a point: that social is more than the stuff the marketing team deals with. It's something that allows organizations to do things entirely differently — if we let it become the backbone of our business models.

How does this work? What are the rules? What does it mean for all parts of my business? That's something I will be exploring in several posts for HBR. Here, let me start with three major shifts that I see:

Most organizations operating today started when companies needed more operating capital. Being big was in itself a mark of success. And in fact, being big created a natural barrier to entry for competitors. The "big" mindset continues to form an organizational framework for many institutions. Take banking as a visible example. Bank of America recently considered a $5 fee for customers to get their own money via their debit card because they have to find a way to fund all those retail storefronts. But if they were launching today, banks would likely ask themselves how to accomplish the transactions (deposits,withdrawals, financial management) of banking without the physical commitment of banks. They might try what ING is doing with its café model. They might even reimagine what it is to lend money. Instead of competing with new startups like Lending Club or ProFounder, they might be the ones reinventing the space.

Conversations, not chains

Many organizations still operate by Porter's Value Chain model, where Z follows Y, which follows X. These linear models optimized efficient delivery of a known thing. But this doesn't help us when faster, fluid responses are what we need. Fifteen years ago, The Cluetrain Manifesto taught us that markets are conversations and that was a great starting point. But "conversations" can actually go deeper if you allow them to become central to how you work, rather than leave them on the perimeter of the work. How many companies have figured out how to shift from supply chain management to integrating customer feedback directly into their product design, distribution, and delivery? Because that's the point.

Mass markets were a convenient fiction created by mass media. Television and major magazines could only reach only very vague demographic segments like "women of child-bearing age" and "college students," so a lot of organizations still think of that as "targeting" their offer. But real markets are much more precise.

Finding out where any particular customers hang out and talking with them directly is central to accurately understanding demand and building it into the business model. Case in point: Gap missed many of its performance numbers in 2011 by believing that their only interaction with their customers happened at the cash register.

Sharing, not telling

When companies think of social media, they hope to get consumers to "like" them or "fan" them, as if that increased connection is meaningful. Again, that captures the marketing aspect but misses the strategic point. The social object that unites people isn't a company or a product; the social object that most unites people is a shared value or purpose. When consumers "love" Apple, they are saying they love great design and the shared idea that "thinking differently" is valuable. By "loving" Firefox, the web community is saying that they believe an open web browser is valuable to the world. By loving TEDx, a volunteer army of people are saying they believe that smart ideas that get people to think more about their world is a cause worth putting energy into.

Companies that just tack a Facebook page onto their existing model without cultivating that shared purpose often sound know-it-all, tone-deaf, or stupid. This was the case with Netflix, whose well-documented pricing snafus showed a tone that didn't work for the social era. It's worth appreciating that Netflix defeated Blockbuster by appreciating the shift from lean over big, but hasn't yet caught onto a co-creative relationship; it continues to tell the market what they should want. Collaborating with consumers or movie aficionados would allow an ongoing exchange. For example, Netflix might have a passionate set of enthusiasts who review films and recommend content in the same way that GoodReads offers book enthusiasts a venue to exchange ideas. That would have naturally put them into conversations with influencers who could have an interest in what the company creates. Instead, they focused their efforts, famously, on refining their recommendation algorithm — taking social out of the equation.

Collaborating with people through shared purpose creates advantage because it allows everyone to work towards a shared goal. When people know the purpose of an organization, they don't need to check in or get permission to take the next step, they can just do it. When people know the purpose, they are not waiting to be told what to do. With shared purpose, alignment happens without coordination costs. Shared purpose makes customers and team-members more than transactions and payroll recipients. It allows us to "tear down that wall" between who is "in" or "outside" the firm creating a more permeable organization which unleashes the inherently collaborative nature of work — like a herd of gazelles running leaderlessly, daringly, across a plain. This is the foundational principle of the social era.

What the 800-pound Gorilla used to fight against was the younger entrant coming in on a different dimension of performance, gaining a foothold and fundamentally changing the cost structure. That was why Christensen's The Innovator's Dilemma became the bible of the boardroom. But the web and the social era enabled by it have illustrated a new truth: it's not enough to do more, faster, cheaper. No, we need to do things entirely differently.

Today, many 800-pound gorillas look more like dinosaurs. From technology, to banking, to education to health care, from automobile makers to the media, many organizations that once dominated now struggle to meet the rapidly changing demands of a volatile, global marketplace. Thus far, organizations have been focused on tacking on social elements onto their current operations. Social has been adopted programmatically, rather than strategically. All that does is get the Gorillasaurs to lumber a little faster. It's not enough to escape the asteroid.

The reality is more like this: The world has changed; how we create value has changed. Organizationally we have not. It will be wholly insufficient to put the word "social" in front of existing business models and expect things to change. Instead, we need to imagine the fundamental enterprise anew for the social era. Lean, adaptive, community-driven organizations, built for speed, will thrive. In my next post, I'll talk more about how companies like that organize to win.